By Bryce Roberts, contributor

The venture community is more lively than its been in the last decade, returns are starting to flow and many are reaping the benefits of a diverse venture ecosystem that began to flourish in the wake of the dotcom bust.

At the time of the dotcom melt down, the venture capital sector was heavily over funded with mega venture funds raising billions upon billions of dollars. As capital became more scarce, these firms reigned in fund sizes and refocused on their core value proposition of working closely with entrepreneurs to build great companies, not just increase their dollars under management.

In the wake of the recent financial meltdown, I’ve been noticing a similar consolidation of capital. This time, however, the capital isn’t just consolidating to one state, one city or one street. Instead, it’s consolidating to just a handful of firms on the same street. A quick look at some recent fundraising numbers helps to highlight a story that is unfolding now:

• KP $2.25B
• Accel $2B
• Greylock $1B
• Bessemer $1.6B
• Sequoia $2B
• NEA $2.2B
• Andreesen Horowitz $825M

My fear is that as this consolidation continues there will be a few possible outcomes.

First, if these firms continue to scale fund sizes quickly they will cut off the oxygen supply for new funds, new managers and and new investment models. Just like no mid-level manager ever got fired for buying IBM back in the day, today’s limited partners will never get fired for backing anyone on the approved list above. If these firms continue to increase fund sizes to meet demand, the venture ecosystem will suffer from lack of overall diversity.

A second outcome could be that local capital dries up completely. Local capital — money invested outside of VC hotbeds like Silicon Valley — can help shape the next generation of companies within emerging entrepreneurial economies. Helping them scale to the point where follow on capital is willing to get on a plane to invest rather than make them move out of the area. The recent emergence of New York City and Boulder serves to highlight what can happen when local capital is put to work by capable investors living in the region.

A third outcome could be that angel investors and seed funds, who’s companies rely heavily on upstream capital, will take less risk on ideas and entrepreneurs who don’t fit the classic Sand Hill Road mold. Say you’re not a techno Wunderkind, proven executive or repeat entrepreneur. Or, you are one of the above, but happen to be working in an area of technology that isn’t in vogue just yet. The less diversity in upstream capital, the less diversity the ideas that get funded will be. And the less risky, too early, too small a market, too crazy to work ideas that get funded the worse off our ecosystem, overall, will be.

The reason for highlighting this now is not to sow fear around these firms — I’ve worked with many of them and they have been great partners for us and our companies. I simply to put this trend on your collective radars. I, for one, would like to see the companies we seed mature into as diverse a funding environment as possible: One where they have wide range of Series B, C and D options. Where different fund sizes can encourage a wide array of exit scenarios beyond the quick flip or the multi-billion-dollar IPO. And where the bold, and occasionally too early, entrepreneurs we fund can find partners who share their vision for the scale and impact of the companies they’re trying to build.

Bryce Roberts is a co-founding partner of O’Reilly AlphaTech Ventures. This post originally appeared at his blog.